Most of us who have followed Brexit closely believed coronavirus would soften the government’s stance in trade talks with Europe. The economic shock triggered by the pandemic, and the fact Whitehall is so overwhelmed managing it, made it more likely the government would extend the transition period, due to expire at the end of this year, or strike a deal. It turns out that the opposite is true. Rather than encouraging a more flexible and pragmatic approach, Covid-19 has instead reinforced the case for no deal at the very top of government.
Perhaps the most important driver is the belief among ministers that the UK economy will be permanently reshaped by the crisis, as companies create new supply chains and reshore production to provide greater resilience in the future, not least in case of another pandemic. The government wants a free hand to facilitate this change, one that it believes would be constrained by the EU’s demand that the UK remain tied to its labour and environmental standards and state aid rules.
On the other side of the same coin, there are growing fears in cabinet that maintaining close EU ties would lock the UK into the EU’s post-Covid-19 economic measures designed for its 27 member states, with little regard for the UK’s interests. This is nonsense, as the EU’s rescue package unveiled last Wednesday assumes no UK financial contribution. But it is a powerful argument on the Eurosceptic backbenches and has scared many in cabinet.
Another argument popular with backbench Brexiteers, but now more prominent among ministers, is the belief that coronavirus presents the government with an opportunity to “bury” the loss of growth from no trade deal under the cover of the much more dramatic drop in GDP caused by coronavirus.
The politics of this are very juicy for the Vote Leave team in the driving seat in government. Not least because it is only really a no deal that fully delivers on their substantive “divergence” agenda, while any version of a deal with the EU, no matter how distant, will ultimately tie the UK into EU rules and regulations in some way, an idea they hate and are loath to accept. No deal also facilitates a trade deal with the US, and the symbolism of “Global Britain” is key for ministers – far more important than the limited economic benefit a UK-US trade pact would bring.
Time is also running out. Despite three rounds of talks so far, no progress has been made and negotiators on both sides are downbeat about the likelihood of a breakthrough this week. Big gaps remain – in the UK over whether and how far to align to EU standards, the role of the European court of justice and the EU’s demands to fish in UK waters. But the government won’t extend the transition period. Boris Johnson believes he would struggle to sell to voters the extra £10bn in financial contributions and further spell of EU control of UK laws that this would bring.
A political intervention on both sides will therefore be needed to move beyond the current stage. There will likely be an opportunity next month, when Johnson meets the European commission president, Ursula von der Leyen, virtually, around the time of a long-planned EU leaders’ session in June to review progress. But the EU is unlikely to change its mandate and absent progress, ministers plan to make a judgment in September so they can give business clarity about the trading arrangements from 1 January. They may switch to assuming and preparing for no deal then.
Finally, the survival of Dominic Cummings, Johnson’s closest adviser, despite allegations he broke the lockdown rules, also enhances the prospect of no deal. One reason why Brexiteer ministers and aides rallied behind him is that he sees it as his personal mission to prevent Johnson extending the transition period in June, and delivering a version of Brexit that lets the UK “take back control”. It would be wrong to underestimate his impact on the outcome of these negotiations.
Of course, this could all be tactics and bluster. Johnson and his cheerleaders on the backbenches have convinced themselves that such brinkmanship worked during the withdrawal agreement talks, so it is no real surprise they intend to repeat the trick now. Especially as they believe, wrongly, that coronavirus will make the EU more desperate to conclude a deal and buckle at the last moment. But Downing Street is right that December is the real deadline.
Germany’s role will be key. I say this not as a naive Brit, believing that Angela Merkel will ride to Britain’s rescue, but as someone who has spent more than two decades studying and working on EU affairs. With Germany at the head of Europe’s rotating presidency, and Merkel in the final throes of her chancellorship, she will find it very hard to sign off on no deal. Of all of the EU’s member states, Germany has been the most focused on the longer-term, geopolitical risk of no deal, and the necessity for the UK and EU to maintain constructive ties.
But even Merkel can’t and won’t save the UK from itself, and will not agree to a deal at any price. If the net effect of Covid-19 is that ministers see more benefit than cost from no deal, for now the dominant view in cabinet, then that will indeed be the outcome at the end of this year.
• Mujtaba Rahman is the managing director for Europe at Eurasia Group, a political risk research and consulting firm